2023 (3) TMI 533 - SC - VAT and Sales Tax

Input Tax Credit (ITC) - Genuineness - Onus to prove / burden of proof - Interpretation of statute - Section 70 of the Karnataka Value Added Tax Act, 2003 - Input Tax Credit claimed by the respective purchasing dealers - HELD THAT - The provisions of Section 70, in its plain terms clearly stipulate that the burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that the ITC claim is correct is squarely upon the assessee who has to discharge the said burden. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a burden of proof cannot get shifted on the revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. It is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70 of the Act, 2003. In the present case, the respective purchasing dealer/s has/have produced either the invoices or payment by cheques to claim ITC. The Assessing Officer has doubted the genuineness of the transactions by giving cogent reasons on the basis of the evidence and material on record. In some of the cases, the registration of the selling dealers have been cancelled or even the sale by the concerned dealers has been disputed and/or denied by the concerned dealer - over and above the invoices and the particulars of payment, the purchasing dealer has to produce further material like the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods including actual physical movement of the goods, alleged to have been purchased from the concerned dealers. In absence of any further cogent material like furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority. Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003. The impugned judgment(s) and order(s) passed by the High Court and the second Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside - Appeal allowed.

Summary

Issues Involved:
1. Interpretation of Section 70 of the Karnataka Value Added Tax Act, 2003.
2. Validity of Input Tax Credit (ITC) claims by purchasing dealers.
3. Burden of proof on purchasing dealers to substantiate ITC claims.

Summary:

Interpretation of Section 70 of the KVAT Act, 2003:
The core issue revolves around the interpretation of Section 70 of the Karnataka Value Added Tax Act, 2003 (KVAT Act, 2003), which stipulates that the burden of proving the correctness of an ITC claim lies on the purchasing dealer. The Supreme Court emphasized that the mere production of invoices or payment by cheque is insufficient to discharge this burden. The purchasing dealer must prove the actual physical movement of goods and the genuineness of transactions by providing additional supporting materials such as the name and address of the selling dealer, details of the vehicle delivering the goods, payment of freight charges, and acknowledgment of delivery.

Validity of ITC Claims by Purchasing Dealers:
The High Court had previously allowed ITC claims by purchasing dealers based on the production of invoices and payments made through cheques. However, the Supreme Court found this approach erroneous, stating that these documents alone do not prove the genuineness of transactions or the actual movement of goods. The Supreme Court reinstated the orders of the Assessing Officer and the first Appellate Authority, which had denied ITC claims due to doubts about the genuineness of the transactions and the lack of sufficient evidence.

Burden of Proof on Purchasing Dealers:
The Supreme Court highlighted that under Section 70 of the KVAT Act, 2003, the burden of proof is squarely on the purchasing dealer to establish the correctness of their ITC claim. This includes proving the actual transaction and the physical movement of goods, beyond just presenting invoices and payment records. The Court rejected the argument that the burden shifts to the revenue once invoices and payments are produced. The purchasing dealer must provide comprehensive evidence to substantiate the ITC claim.

Conclusion:
The Supreme Court concluded that the second Appellate Authority and the High Court erred in allowing ITC claims without sufficient evidence of the genuineness of transactions and actual movement of goods. The Court quashed the High Court's judgments and restored the orders of the Assessing Officer, denying ITC to the concerned purchasing dealers. The appeals were allowed, with no order as to costs.